Financial Concerns and Overall Life Satisfaction: A Joint Modelling Approach

Daniel Gray

Abstract

This paper explores the relationship between the household's financial position and overall life satisfaction. The empirical analysis, based on a large nationally representative panel survey for Germany, aims to ascertain the impact of a household's subjective and monetary financial positions on overall life satisfaction. Within a fixed effects framework, the level of household assets and net wealth are positively related to overall life satisfaction, as is household income. Allowing for different types of debt to have differential impacts on overall life satisfaction reveals that unsecured debt, opposed to secured debt, has a detrimental impact on overall life satisfaction. In addition, the household's subjective financial position is found to be an important determinant of overall life satisfaction. The potential endogeneity of the subjective financial measures in the overall life satisfaction equation is accounted for using a recursive bivariate ordered probit model. The results suggest that the subjective financial position mediates the association between the household's monetary financial position and overall life satisfaction.